In this Write –up we are addressing an issue of profound national significance: the recently submitted tax reform bills by President Bola Ahmed Tinubu to the National Assembly. These four bills—The Nigeria Tax Bill, The Nigeria Tax Administration Bill, The Nigeria Revenue Service Establishment Bill, and The Joint Revenue Board Establishment Bill—represent a bold and transformative effort to reshape Nigeria’s tax system.
The Nigeria Tax Bill seeks to eliminate unintended multiple taxation, simplify tax obligations, and make Nigeria’s economy more competitive for businesses and individuals alike.
The Nigeria Tax Administration Bill introduces standardized rules for the administration of taxes across federal, state, and local levels. Its primary objective is to harmonize tax processes and make compliance easier for taxpayers in every part of the country.
The Nigeria Revenue Service Establishment Bill proposes renaming the Federal Inland Revenue Service (FIRS) to the Nigeria Revenue Service, reflecting a renewed commitment to efficient revenue collection and administration.
Finally, The Joint Revenue Board Establishment Bill lays the foundation for three critical new institutions:
Joint Revenue Board of Nigeria: This body will harmonize taxes nationwide, eliminate nuisance taxes, and establish a national database of taxpayers.
Tax Appeal Tribunal: A platform to resolve tax disputes, such as residency issues for personal income tax collection, ensuring fairness and transparency.
Office of the Tax Ombudsman: A safeguard for taxpayers, offering recourse for those aggrieved by the actions of tax authorities.
Ladies and gentlemen let us now focus on the portion of the bill that is at contention-The current system of sharing VAT revenue operates as follows:
The current system of sharing VAT revenue operates as follows:
- All VAT revenue collected monthly is distributed as follows:
- Federal Government: 15%
- State Governments and FCT Abuja: 50%
- Local Governments: 35%
- The 50% allocated to state governments is further distributed in this manner:
- 50% equally distributed: Each state and the FCT receive an equal share of this portion. For instance, if the states’ total share is N100 million, 50% (N50 million) is divided equally among the 36 states and the FCT.
- 30% based on population: This portion is distributed according to the population of each state and the FCT, with larger states receiving a higher share.
- 20% based on derivation: This is distributed according to the VAT revenue collected by each state. The more VAT collected within a state, the greater its share.
- The derivation component (20%) has been a subject of contention for years. Lagos State, for example, collects the highest VAT not necessarily because more VAT-generating transactions occur there but because most major companies have their headquarters in Lagos. As a result, they pay VAT from activities conducted nationwide directly in Lagos – Headquarter Effect.
For example, if you make a call in Kaduna using your MTN line, the VAT charged for that call is not paid in Kaduna. Instead, MTN aggregates VAT collections nationwide and remits them from its headquarters in Lagos. This inflates Lagos’ VAT contributions and increases its derivation share.
This is what the new bill proposes
- The bills propose changes to the distribution formula:
- Federal Government share: Reduced from 15% to 10%.
- State Governments’ share: Increased by 5%, bringing it to 55%.
- Local Governments’ share: Maintained at 35%.
- Changes to the state government’s allocation formula:
- The 50% equal share is reduced to 20%.
- The 30% population-based share is also reduced to 20%.
- The 20% derivation share is increased to 60%.
- A significant change in the VAT collection system:
- Instead of companies remitting VAT from their headquarters, VAT will now be collected and remitted in the state where the VAT-generating transactions occurred.
We acknowledge that this shift presents unique challenges for northern states, which have for many years relied on the federal sharing the 50% VAT equally to all the states, and it is with these funds that the state governors run the states. As such a reduction in federal VAT revenue under this model could significantly impact the region.
However, this is not a time to dwell on challenges alone. Instead, we urge our state governors to take this challenge as an opportunity to redefine the northern region’s economic narrative—a narrative rooted in independence, innovation, and resilience.
For decades, northern Nigeria has been a cornerstone of the country’s economic history, from the era of the groundnut pyramids to its agricultural and industrial contributions. Today, we must harness that same spirit of enterprise and determination to develop the economy that this new VAT derivation formula will favor us too.
One of the key ways the reforms will benefit the northern region is by creating an environment conducive to business growth and investment. With a reduced corporate income tax rate, businesses in the region will have more resources to invest in expansion, hiring, and innovation. This, in turn, will lead to job creation, increased economic activity, and a rise in living standards.
Similarly, this reform is sensitive to the plight of the common man, in this sense our northern Talakawas as it Exempts individuals earning N800,000 or less from paying income tax. Currently, if you earn a total of N800,000 annually, you are required to pay N84,000 out of this amount as income tax. But With this bill, you will not pay anything. So you see that the bill helps to fight poverty at the Talakawas level (masses)
2 Also only those earning above N50 million get to pay 25% personal income rate. Under the current law, once you earn above N3.2 million you will be charged 24% income tax.
- Look at how the bill also is sensitive to small businessmen and women, it Exempts small businesses from paying income tax. In this bill, small companies are defined as those with an annual turnover of N50 million or less. In the current law, small businesses are defined as those with a turnover of N25 million or less. What this means is that up to 90% of businesses in Nigeria will be exempt from paying income tax.
- Reduction of company income tax rate from 30% to 25% in 2026 for medium and large companies.
- Elimination of minimum income tax of 1% charged on the gross earnings of medium and large companies that did not declare profit. Only profit is taxed under the new tax bill.
So if you look at the bill critically you understand that while its takes from the rich more it protects he poor.
So this is why we are calling on our Northerner Governors and elites to look inward-our region is endowed with immense potential, including:
A dynamic population rich in human capital and innovation.
Leaders in industry, such as Aliko Dangote, who epitomize African industrialization.
A thriving creative industry, led by Kannywood, showcasing the region’s cultural vibrancy and global relevance with a big presence on social media
Abundant arable land, positioning the region as a potential agricultural hub for Nigeria and Africa.
To unlock this potential, we must act decisively:
Develop Economic Plans: Our leaders must implement comprehensive short-, medium-, and long-term economic strategies to drive local development.
Revitalize Key Industries: Textiles, leather, confectioneries, and automobile production must be restored to provide jobs and foster economic growth, the new Corporate Income Tax will help these companies to revitalize and grow.
Address Security Challenges: Insecurity and terrorism, often fueled by religious intolerance, must be confronted through policies and programs geared at uniting the people. Once we secure our region, multinational investors will come in to invest because we have the population for their markets.
Embrace Meritocracy: We must empower the brightest minds and talents, ensuring excellence drives progress.
With these measures, the northern region can regain its economic vibrancy, generate substantial VAT revenue internally, and secure a thriving, self-reliant future.
This is our moment to redefine northern Nigeria—not as a region dependent on federal allocations or VAT generated from companies headquarters outside our region but as a powerhouse of productivity and innovation.
This is the time for our states in noth to contribute resources to the center just like any federating state from other states in the south.
Moreso there is also the Income Tax which proposes to make the rich pay more than the poor.
We call on all northerners and Nigerians to rise to this challenge.
It’s important to note that it’s not a correct perception that President Bola Ahmed Tinubu is trying to victimize the north with the Tax Reform Bill but rather trying to provide a conducive economic environment for robust economic boom in our region..
Let us unite to support these reforms, seize the opportunities they present, and work together to build a brighter future for our region and our nation.
Thank you
Signed
Isaac Abrak
Chairman, Northern Christian Youth Professionals